Household support package could cost £140bn, warns Cornwall Insight
The Government’s support package to ease soaring household energy bills could climb as high as £140bn, warned energy specialist Cornwall Insight.
This would mean the Energy Price Guarantee, which freezes energy bills at £2,500 per year for average use over the next two years, would cost more than double the £69bn furlough scheme.
As it stands, the Government is intending to put the costs onto borrowing, rather than asking the taxpayer to repay them directly.
Cornwall Insight has established four plausible different energy market scenarios based on a mix of recent market price expectations and its own fundamental models.
However, its predictions vary from £72bn-£140bn depending on wholesale costs, with the massive variation reflecting the volatile nature of the months ahead and the difficulty in making firm predictions.
Cornwall Insight also noted most these factors are outside the government’s control.
These factors include energy demand, weather, geo-political uncertainty and global liquefied natural gas prices which could all hugely influence the cost of the support package.
As it stands, the performance of European electricity and gas infrastructure, future policy and regulatory intervention, and the actions of hostile and unpredictable actors are all highly uncertain over the two-year period of support.
Gareth Miller, chief executive at Cornwall Insight said: “Fortune befriends the bold, but it also favours the prepared. The large uncertainties around commodity markets over the next two years means that the government could get lucky with costs coming out at the low end of the range, but the opposite could also be true.
“In each case, the government may find itself passengers to circumstances outside its control, having made policy that is a hostage to surprises, events and volatile factors. That’s a difficult position to be in.”
Cornwall Insight argued that the Government needed to encourage behavioural changes from households to reduce energy demand, as using less energy would make the impact of market volatility less harmful to consumers.
The Government has announced a £1.5bn support package to boost energy efficiency across UK households, including insulation and double-glazed windows.
According to The Guardian, ministers are discussing the possibility of a public information campaign to encourage households to reduce their energy use this winter as fears grow over winter blackouts.